America can’t afford complacency on China
In China, as we learned last month, there are Apple Stores and then there are “Apple Stores.” Both sell Apple computers, iPads, cable adaptors, etc. But while Apple’s official beachhead store in Shanghai Pudong attracts mega-sized crowds, about 900 miles west of Shanghai in the city of Chongqing, some entrepreneurial types brazenly knocked off the Apple store concept. Enter one of these stores and you’d find the familiar t-shirt clad friendly geek, the clean (though not as minimalist) Apple aesthetic, and a full stock of real-deal Apple computers. Employees in the store actually believed they were working for Apple and Steve Jobs until press accounts of the knock-off began appearing last month.
This story tells us two things: First, China isn’t yet on the cutting edge of innovation. But second, its imitations are improving and its people are learning fast. In other words, the gap between China and America remains wide, but the narrowing is beginning to gather speed. We won’t wake up tomorrow to discover that China surpassed America to become the world’s leading economy. But there’s a Great Rebalancing underway, one that will fundamentally reorder the relationship that these two economies have with one another and with the world.
For the Chinese leadership, the financial crisis and the resulting market meltdowns in America and Europe underscored the urgency of economic reform. An economy over-reliant on exports to Western consumers is an increasingly bad idea, because when Americans and Europeans stop spending, China starts hemorrhaging millions of jobs. That’s a threat to the country’s baseline social stability.
That’s why China’s latest five-year plan lays out a path toward rebalancing the Chinese economy away from over-reliance on exports and toward greater reliance on Chinese shoppers and their ability to buy more of the products that China makes. It also reflects an attempt by the leadership to reduce its overall political and economic dependency on the US.
It will be difficult for Beijing to accomplish this rebalancing in the short-term—as my colleagues on Eurasia Group’s China Team discuss in a new report. But there is no question that the Chinese government is trying to take real steps in that direction today. For example, on Chinese financial investments into US Treasury bonds, while Beijing won’t undermine its massive investment in the U.S. with any sudden moves to the exits, it is slowly working to redirect its new money elsewhere. China is already increasing its Euro-denominated holdings and investment more in hard commodities around the globe.
Over the longer-term, Beijing will also work to lessen dependence on the US dollar as a reserve currency. This summer’s circus in Washington can only hasten that process.
But US policy makers seem strangely complacent in this process.
Over the past six months, the attention of US policymakers has bounced from one headache to another. Europe’s sovereign debt crisis, the Arab world’s turmoil, NATO’s fight with Muammar Qaddafi, Japan’s triple disaster, a spike in oil prices, and partisan fistfights over the debt ceiling have (mostly) kept China out of the headlines.
US-China relations have also been relatively calm this year, after more serious tensions in 2010.
But it won’t last. And Washington will have to spend more time and energy on putting out fires in the China relationship if it wants to keep relations on an even keel moving forward.
From suspicions of cyber-attacks to censorship to American CEOs publicly airing their frustrations over state-imposed barriers to doing business in China, yesterday’s mutually profitable partnership is fast becoming tomorrow’s emerging rivalry.
Yet, there are still crucial reasons that Washington must limit this damage and search out new opportunities for US-Chinese cooperation. First, China is not about to close its doors on the United States. China will remain a leading source of affordable products, cheap labor, and cheap capital for the foreseeable future. Third- and fourth-tier cities will open factories and welcome millions of rural migrants like those who descended on the boomtowns of the coast over the past 20 years. This will create consumption “windfalls” that will drive demand for American-made goods in China.
China will also continue to welcome foreign (including American) investment into sectors and regions that Beijing knows must grow—meaning more profit-making opportunities in China for US firms. China will work to gain access to state-of-the-art technology and the managerial and marketing expertise that continues to make Western investment valuable. All of this will create commercial opportunities that America needs.
But there is another reason why America cannot afford for its government to be complacent on China right now. There is also another scenario out there where China’s economic growth projections are scaled back dramatically. A hard landing in China could be generated by a complete failure of the government to pursue its rebalancing goals over the next few years. It could also happen if surging concerns about bad debt in the aftermath of the financial crisis lead to a real banking crisis in the country.
If either comes to pass, and the Chinese government is unable to satisfy its people’s steadily rising expectations for material success, it will become harder to continue to deny its citizens basic civil rights. Modern tools of communication would force state authorities to pour an ever increasing store of resources into managing the free flow of ideas and information through cyberspace. Beijing can cut off the Internet in certain places at certain times, but a lasting blackout would undermine the growth on which China’s success will depend. China can monitor the blogosphere as a means of denying would-be activists an online public square, but they can’t catch every challenge every time. This week’s online public reaction to a high-speed train crash has again reminded authorities that public opinion in China can never again be discounted.
When true political reform finally begins in China, the process will belong to China’s people. But Americans will have a clear and compelling interest in how those changes take shape—and in helping to influence their direction, if only from afar.
This essay is based on a transcribed interview with Bremmer.
Photo: U.S. Vice President Joe Biden (C, bottom) looks on as a Chinese basketball player slam dunks during a U.S.-China friendship basketball match at the Olympics sports center in Beijing August 17, 2011. REUTERS/Ng Han Guan/Pool